Does a rental activity qualify as a “trade or business”? Rental Activity qualifies as “trade or business” only if it rise to the level of those seen in a non-rental business.
Rental Real Estate Safe Harbor A rental real estate activity (or multiple rentals if the taxpayer chooses to combine them) will be treated as a trade or business for purposes of § 199A if the following conditions are met:
- Separate books and records are maintained for each rental activity (or the combined enterprise if grouped together).
- At least 250 hours of “rental services” are performed per year for the activity (or combined enterprise). Rental services include time spent on maintenance, repairs, collection of rent, paying bills, providing services to tenants, supervising contractors and employees, and efforts to rent the property (including advertising and negotiating and executing a lease).
- The taxpayer maintains contemporaneous records, including time reports or similar documents, supporting the services performed (including hours, dates, description of services, and who performed the services). A taxpayer can’t use the safe harbor for the rental of any residence that the taxpayer uses as a personal residence for more than 14 days during the year (e.g., a vacation home).
- Taxpayer must own the rental property directly (rather than, for example, as a partner in a partnership). Finally, triple net leases are excluded from the safe harbor